Issue
Where a life benefit termination payment is paid under an employment contract that was in force before 10 May 2006 but is worked out under a clause of the contract that was varied after 10 May 2006, is any amount of the termination payment a transitional termination payment?
Decision
No. No amount of the particular employment termination payment is specified in the contract or is calculated in accordance with the methodology specified in the contract as in force before 10 May 2006.
Facts
The taxpayer was employed under a contract that was in force before 10 May 2006. Just before 10 May 2006, the contract did not specify the amount of any life benefit termination payment to be paid in the event of the termination of the taxpayer's employment but did specify a methodology for calculating the amount of any termination payment to be made to the taxpayer.
After 10 May 2006 the contract was varied, with the pre-10 May 2006 methodology for calculating any employment termination payment to be paid to the taxpayer replaced with a new, different methodology. However, the existing employment contract was maintained.
The taxpayer's employment was terminated and the taxpayer was paid a life benefit termination payment calculated in accordance with the new methodology inserted into the contract after 10 May 2006.
Reasons for Decision
Section 82-10 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA) provides that a life benefit termination payment may be a transitional termination payment if the entitlement to the life benefit termination payment is provided for under a contract as in force just before 10 May 2006.
Subsection 82-10(3) of the ITTPA further provides that Division 82 only applies to a life benefit termination payment to the extent that the contract as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment.
This is confirmed in the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 at paragraph 4.68 as follows: ...the transitional provisions...are only available in situations where the payment was able to be determined as at 9 May 2006.
In a case such as this, the Commissioner must determine from the employment contract how the taxpayer's entitlement to the termination payment arises and how the amount payable is worked out.
First, there was only one contract of employment, not two. The variation to the terms did not result in the termination of one contract and the commencement of another.
Secondly, the Commissioner determined that the contract as at 9 May 2006 did not specify the amount of the termination payment. Hence, no amount of the actual employment termination payment made to the taxpayer could have been determined under the contract as at 9 May 2006.
Thirdly, the termination payment was calculated in accordance with the new, different methodology inserted into the contract after 10 May 2006 and no part of the payment could be said to be payable in accordance with the old methodology contained in the contract as it existed before 10 May 2006.
Consequently, no amount of the termination payment is a transitional termination payment.
Amendment History
Date of Amendment Part Comment 8 May 2015 Other References Included reference to the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
Date of Amendment | Part | Comment
8 May 2015 | Other References | Included reference to the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006